Sarah Purchased for $100,000 a 10% Interest in a Business

question 68

Essay

Sarah purchased for $100,000 a 10% interest in a business venture that is not subject to the passive activity rules.
During the first year, her share of the entity's loss was $120,000. At the beginning of the second year, the entity obtained $800,000 of recourse financing. During the second year, Sarah withdrew cash of $20,000, and her share of the entity's loss was $25,000. Calculate the amount of loss that Sarah may claim in each of the two years and determine her at-risk amount at the end of each year.

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Definitions:

Psychosexual Stages

A Freudian theory describing how personality develops through five stages from infancy to adulthood, centered on sexual pleasure from specific body areas.

Phallic Stage

A phase in Freudian psychosexual development, occurring roughly between the ages of three and six, where the libido's focus is on the genital organs.

Gender Identity

An individual's personal sense of their own gender, which may or may not correspond with the sex they were assigned at birth.

Psychoanalytic Therapy

A therapeutic approach that explores how unconscious thoughts and childhood experiences affect current behavior and mental health.